Functions of Financial Management

Financial functions can be divided into three broad categories:
(1) Investment decision
(2) Financing decision and
(3) Dividend decision.

In other words, the firm decides how much to invest in short - term assets and how to raised the required funds. In making these decisions the financial manager should aim at increasing the value of the shareholder stake in the firm.

The financial manager rises from capital markets. He or she should therefore know how the capital market functions to allocate capital to the competing firms and how security prices are determined in the capital markets. Most companies have only one senior financial officer. But a large company may have both a treasurer and a controller.

The treasurer’s function is to raise and /manage company funds while the controller oversees whether funds are correctly applied. A number of companies in India either have a finance director or a vice president of finance as the chief financial officer.

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Goals of Corporate Finance

Finance management is a process of planning decisions in order to
maximize the owner's wealth. Financial managers have a major role in cash mangement, in acquisition,raising & allocating financial capital, trade off betweek risk and return.

Goals of Corporate Finance
1. Stockholder wealth maximization.
2. Profit Maximization.
3. Managerial reward maximization.
4. Behavioral goals and
5. Social Responsibilities.

Profit Maximization:
* single Period (short period less than a year).
* Organization can maximize short-term profits at the expense of its long term profitability.

Stockholder wealth maximization
* Wealth for long term
* Risk or uncertainty
* Timing of Returns
* Stockholder's Return.

Finance management

Goals of Corporate Finance

1. Stockholder wealth maximization.
2. Profit Maximization.
3. Managerial reward maximization.
4. Behavioral goals
5. Social Responsibilities.

Profit maximization
* basically single-period or short term (within 1 year)

Stockholder maximization
* Long term
* risk,
* timing of return (early is better)
* stockholder's return

Finance Concepts

FINANCE CONCEPTS FOR MANAGERS

Finance is the universal language of business, the language of goals, objectives, and results. Financial concepts are important for cash management, profit planning, capital investment, contingencies and risk planning, and measuring management performance. This program enhances the participants " financial savvy ", and helps to master the " how to " of financial communication. Today's managers need to have " finance savvy" to get ahead and stay ahead. This program will include the language of finance, presentation of financial data in financial statements and performance reports, and understanding the relevance of accounting rules and procedures.

Comparison of B2B and B2C E-commerce

	B2C	B2B (direct purchasing)	Implications for B2B
Number of participants in market	Many	Few	Bulk of potential customers may be known. Switching costs for buyers may be high.
Number of people involved in purchasing process	Few	Many	“Automation” of buying process should take into account work flow.
Level of customer’s product expertise	Usually fairly low	Usually fairly high	Customer may demand certain product specifications.
Number of transactions	High	Low	Customer interface may not have to be integrated with back-end order/sales system in real time.
$ Value of transactions	Low	High	Sales process may include price negotiation.
Important buying decision criteria	Price Perceived quality Availability	Availability Quality Price Likelihood of long-term relationship	Customers must reduce risk of not having raw materials, shipping and delivery are important ways to manage inventory costs.
Sales process	May be conducted completely online	Often face-to-face interaction needed, online transactions occur once relationship is established.	Online presence may be how customers find out about you, but between this and the sales transaction, trust may be built using face-to-face communication.
Methods of understanding customers	Traditional consumer research, analysis of web logs (clickstreams)	Sales force gathers information, web log (clickstream) analysis	The smaller the number of customers, the more personal interaction defines product offerings and web functionality.
Integration of systems with customer	Low or none	Potentially high	Complexity of implementation rises sharply when customer wants to integrate his systems with yours.
Fulfillment	Usually single shipment	Often multiple shipments on demand or schedule	Shipment details may be determined offline.
Payment	Credit card, PayPal	(Purchase order, invoice, check), EDI, corp. purchase card	EBPP systems may need to be implemented

 

Assumptions of Break Even point and Cost Volume profit

Assumptions:

1. The behavior of both costs and revenues in linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.)
2. Costs can be classified accurately as either fixed or variable.
3. Changes in activity are the only factors that affect costs.
4. All units produced are sold (there is no ending finished goods inventory).
5. When a company sells more than one type of product, the sales mix (the ratio of each product to total sales) will remain constant.

Difference between CASH FLOW and FUND FLOW

FUND FLOW:

*Statement of source of fund and application of funds for a particular accounting period.

* It shows the future fund activities.

* It explains the increase or decrease of Working capital.

* This helps inverstors to know the future funding activities.

CASH FLOW:

* Factual presentation of inflow and outflow of cash.

* explains cash and cash equivalent movements for a particular accounting period.

*Types:

   1. Direct -  i. Operating Activities.

       ii. Investment Activiites.

    iii. Financial Activities.

   2. Indirect -  Net Income and adjustments to that income

* It explains to investors to understand the operations and functions for company how they have spent and from where the money is coming to the company.